博士课程金融工程讲义上篇.pdf

Chapter 1. Consumption-based model and overview Presented By: Zhenlong Zheng Email:zlzheng@ Website: Structure • Basic Pricing Equation • Stochastic Discount Rate • Prices and Payoffs • Classic Issues in Finance • Discount Factors in Continuous time Investors’ Utility Function U(c, c ) u(c)=+βE u(c ) t t+1 t t [ t+1 ] • Utility comes from consumption and is time seperable. • u(•)is increasing and concave. The curvature of u captures investor’s aversion to risk and to intertemporal substitution. • β is called subjective discount rate and it captures investors’ impatience. Investor’s Objective Max u (c ) +E [βu (c )] t t t +1 ξ s .t . =− ξ ct et pt , =+ ξ c e x t +1 t +1 t +1 • e—original consumption level. • ξ --the amount of the asset he choose to buy. • pt—the price of the asset at time t. First order condition ′ ′ p u (c ) E [βu (c )x ](1.1) t t t t +1 t +1 ⎡ ′ ⎤ βu (ct +1 ) p t E t ⎢ ′ x t +1 ⎥(1.2) u (c ) ⎣ t ⎦ ′ p u (c ) • t t is the loss in utility if the investor buys another unit of the asset. • ′ is the in